NEW YORK (CNN/Money) - Manufacturing activity in the United States grew for the seventh straight month in August, the nation's purchasing managers said Tuesday, but at such a weak pace that it raises questions about the economy's future strength.
The Institute for Supply Management (ISM) said its key gauge of manufacturing activity came in at 50.5 percent in August, unchanged from July. Any reading over 50 percent indicates expansion. Economists had expected a reading of 51.8 percent, according to Briefing.com.
And in a worrisome development for future activity, the ISM's new orders index fell to 49.7 percent from 50.4 percent in July. The employment index rose to 45.8 percent from 45 percent in July.
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"New orders softened and are a cause for concern as we look at the balance of the year," ISM survey committee chairman Norbert Ore said in a statement. "At the current level of growth in the overall economy, many manufacturers find themselves anxious about second-half sales."
Coupled with a separate report by outplacement firm Challenger, Gray & Christmas of a 46 percent jump in the number of corporate layoff announcements in August, the data painted a picture of an economy still struggling to keep its head above water following a recession that began in March 2001.
"What we're seeing is reminiscent of the early 1990s -- a jobless recovery," said Sherry Cooper, chief economist at BMO Nesbitt Burns in Toronto.
The data pushed U.S. stock prices even lower in morning trading. Treasury bond prices rose.
The ISM index was below 50 for 18 straight months during 2000 and 2001, as U.S. manufacturers fell into a prolonged slump following a boom in business spending at the end of the 1990s. When businesses stopped spending, companies slashed production and cut more than 1.5 million jobs, triggering a recession in the broader economy.
For this reason, Federal Reserve Chairman Alan Greenspan and other economists believe business spending will be key to the broader economy's recovery.
Continuing growth indicated by the ISM index has raised hope that business spending was on the mend, and there have been other signs that manufacturing is picking up some steam:
- Last week, the Commerce Department said that orders for durable goods posted a huge gain;
- The National Association of Purchasing Management-Chicago said its index of regional manufacturing rose, showing expansion for the seventh straight month; and
- The Federal Reserve said on Aug. 15 that industrial production edged up in July.
But the Philadelphia Federal Reserve Bank said on Aug. 15 that manufacturing in the mid-Atlantic region shrank for the first time this year in July.
"Consider how much of a [spending] boom we had in the '90s," said Wayne Ayers, chief economist at Fleet Boston Financial Corp. and a former Fed economist. "The bad news is that it will take a long while to work through that. We're looking at the first quarter of next year before we see convincing evidence [of a recovery]."
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